GST and demonetisation will formalise our economy: Rajiv Lall, IDFC

In a chat with ET Now, Rajiv Lall , MD, Chairman IDFC said that, “I am one of the optimists and I think that the damage to the economy will not be as deep or vicious as some people imagine it will be.” Edited Excerpts:

ET Now: How do you thing is the banking system coping up with the demonetisation drive?

Rajiv Lall: I think we are coping reasonably well actually, if you notice every day since the announced first was made on November 8th, government had been proactively making adjustments. The RBI had been responding with new modified directives about various procedures for exchange of notes and taking deposits. You can see the queues across the country have come down, we see the same thing in our own bank which tells me that the initial shock has now been digested and what we are going through are the fall out consequences of what as you say is a completely unprecedented step and its scale so any time you have such a huge monetary shock there are bound to be economic dislocations as results. So nobody has any clear sense, I know a lot of people are putting out number how GDP is going to fall, this that and the other, no doubt it has affected immediately economic activity, transporters are not able to function, small restaurants are having difficulty, small businesses are hurting, all of that is happening to different degrees across the country.

How deep the initial real economy shock is going to be I do not think anybody really knows but what we do know is that it is important at this point to remonetise the economy with new currency and that is happening at the fastest possible pace. I do not really know how long it will take, let us say it takes a month, maybe two months, once that happens then things will begin to settle down and we will get a clearer sense for what the medium term prospects look like. I am convinced however that it

is really just a matter of time, what has happened in this whole exercise will bring about some behavioural change in the Indian economy and that behavioural change will have lasting beneficial impacts for all of us. What will it do, it will formalise our economy, remember the GST is also coming on board in the next few months so with the GST and demonetisation it will force people to move into the formal economy. It will actually force people or encourage people to do more business through the formal banking system and both those things in the long term are going to be very good for us.

ET Now: The market watchers, the economy watchers are grappling with the situation and just said how to estimate the damage to the economy which may happen in the short term because of money supply being completely chocked? What are your initial thoughts however rough it might be of the next two three quarters what kind of shock..

Rajiv Lall: So I am one of the optimists and I think that the damage to the economy will not be as deep or vicious as some people imagine it will be and I have been convinced that the medium to long term benefits of this scheme will outweigh the short term costs that we will all have to swallow.